Global Economics

Tata's Latest Billion-Buck Buy


The latest cross border M&A deal by the Indian conglomerate surprises observers by having Tata Chemicals, not Tata Motors, in the driver's seat

Tata Chemicals announced yesterday a deal to acquire US-based chemical firm General Chemical Industrial Products for $1 billion.

General Chemical is a soda ash producer with a capacity of 2.5 million tonnes per annum at its manufacturing facilities at the Green River Basin in Wyoming. Details of how Tata Chemicals intends to finance the acquisition weren't disclosed in the company's stock exchange filing.

Demand for soda ash, which is used for making soaps, detergents and as an input into other chemicals, is increasing in Asia as domestic consumption drives demand. Tata Chemicals has already made one overseas acquisition—the Brunner Mond Group in the UK—and the latest deal is another attempt by the Indian major to add capacity and secure supply.

The targeted completion date hasn't been announced and the deal is subject to approvals from shareholders and regulators.

A leading Indian conglomerate, the Tata group is on an overseas acquisition spree that can be traced back to 1999 when Tata Tea acquired Tetley for $431 million from an investor consortium led by Schroders. The Tetley deal was at the time the largest cross border takeover by an Indian company.

But it is in the recent past that the group has really put its foot on the accelerator.

Tata Steel announced a few deals in Southeast Asia before it went all out with its acquisition of UK's Corus last year for an equity value of $12.2 billion. The trade is the largest cross border outbound M&A deal out of India and also the largest leveraged buyout by an Indian firm.

Some observers had been suggesting the Tata group may need to take a pause and digest the Corus acquisition, but the Tatas obviously did not agree. The Indian group announced late last year that it was the leading suitor for Ford Motors' Land Rover and Jaguar businesses. That deal is expected to close shortly and will also be worth upwards of a billion dollars.

But Tata Chemicals, which was advised by Standard Chartered and Lazard, was still viewed as a somewhat surprising acquirer as the markets had not got wind of this deal.

The Tatas have once again acquired a firm with a long operating history. The General Chemical group traces its roots to the nineteenth century and was a pioneer in chemical manufacturing. It started facing problems early this decade due to lower realisations and mounting operating costs. In 2004, the US company went through a reorganisation pursuant to a Chapter 11 bankruptcy filing, whereby Harbert Management became the firm's principal shareholder.

Harbert Management is an investment management firm which has grown the assets it manages from $1.5 billion in 2002 to $21.2 billion as of December 2007. It made the investment in General Chemical via its fund Harbinger Capital Partners which focuses on restructurings, turnarounds and liquidations.

Tata Chemicals shares initially gained on the news, then lost 7% over the course of yesterday's trading to close at Rs305 ($7.75), making it one of the top losers of the day. Indian bourses, in tandem with other Asian markets, have been nervous over the past few trading sessions as subprime concerns have started to sink in. In this environment, investors view announcements of large acquisitions, especially unexpected ones, with trepidation.

The Sensex traded in a tight range yestarday, closing down around 1% at 17,467.

Anand is a writer at FinanceAsia.com .

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